Russian Sanction Evasion: Typologies and Recommendations
Table of contents
What is REPO
In February 2022, Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Commission launched the Russian Elites, Proxies and Oligarchs (REPO) Task Force (“the Task Force”), the effort using information sharing and coordination in order to isolate and exert unprecedented pressure on sanctioned Russian individuals and entities.
Though REPO’s efforts have resulted in the freezing of tens of billions of dollars and the seizure of high-value goods or property, some sanctioned individuals are still managing to evade sanctions, maintain access to funds and in some instances even generate additional revenue or procure export-controlled and sanctioned items.
Typologies of Russian Sanctions Evasion
Use of Family Members and Close Associates to Ensure Continued Access and Control
REPO Task Force members identified various instances in which Russian elites transferred beneficial ownership of legal entities and arrangements and other property to their children in order to maintain control and access to wealth; or in some instances sanctioned individuals or oligarchs directly transferred funds to family members in an attempt to hide assets. Such movement of funds or control also allows the sanctioned person to avoid scrutiny from regulators and competent authorities.
Use of Real Estate to Hold Value, Benefit from Wealth
Since the invasion of Ukraine there has been an increase in the use of real estate as a vehicle to hold Russian Wealth, the increase could be indicative of sanction evasion activity. Additionally, sanctioned Russian individuals and entities may launder or attempt to launder and obfuscate illicit proceeds such as those derived from sanction evasion, through the purchase of real estate; often hiding behind nominees or opaque corporate structures. Another sign of sanction evasion through real estate is below or above market value purchases, especially with off-shore buyers with potential links to Russia.
Use of Complex Ownership Structures to Avoid Identification
Case studies illustrate how illicit actors including sanctioned individuals use complex ownership structures to disguise their involvement with particular entities or assets. Sanctioned individuals may use a combination of legal entities and arrangements such as trusts to prevent detection; these arrangements may indicate that everyone involved in the trust, including law firms, trustees and beneficiaries, were involved in the evasion of sanctions.
Use of Enablers to Avoid Involvement, Leverage Expertise
Sanctioned individuals may attempt sanction evasion by utilizing certain persons in key professions. The professional may perform certain functions on behalf of the sanctioned individual to allow the sanctioned individual continued access to funds. Key professionals include lawyers, accountants, trust / company service providers and individuals / entities who help consolidate investments from high-net worth individuals or institutional investors, among others.
Use of Third-Party Jurisdictions, False Trade Information to Facilitate Sensitive Goods Shipment to Russia
A method that sanctioned individuals have to access sensitive restricted goods, is the use of a freight forwarding business, often located in a third-party jurisdiction, as the final destination of a good which will then be shipped to Russia. The entities facilitating these transactions may often appear to have no affiliation with the transaction and may utilizing a known trans-shipment point. False or fraudulent documentation may be relied upon in order to ensure the delivery of the restricted goods.
Ensure Compliance with National Rules Incorporating FATF Recommendations Regulated Entities must ensure compliance with the FATF Recommendations including designing appropriate risk mitigation measures to prevent illicit economic activity such as the use of shell companies or nominees.
Ensure Compliance Program Implements Relevant AML/ CFT Laws and Regulations and is Regularly Reviewed
Regulated Entities are obliged to take all necessary measures in order to ensure compliance with AML/CFT laws and regulations, and reporting requirements, including detecting and reporting suspicious activity.
Take Part in Existing Public-Private Partnerships
Regulated Entities play a key role in the international financial system, holding valuable data and insight to mitigate risks of Sanction Evasion activity. Regulated and non-regulated entities are urged to partake in public – private partnerships with competent authorities allowing Regulated Entities to gain further perspective on Russian sanction evasion and their efforts; the competent authorities may also gain insight regarding risks, trends and typologies identified in the private sector. Such cooperation may assist in the detection, reporting and prevention of potentially violative conduct.
Leveraging Information Sharing Protocols
Regulated Entities are urged to utilize existing information, where possible, sharing mechanisms in order to leverage other regulated entities' data holdings and unique position to enhance their efforts in identifying and mitigating the risk of sanction evasion.
Update Risk Assessments
Regulated Entities should be aware of the changes in illicit behaviour, ensuring that their risk assessments remain in-line with the relevant risks.
Increase Awareness of Sanctions Risk and Its Impact for Non-AML/CFT Regulated Entities
Regulated and Economic Entities are urged to seek out educational opportunities in order to better understand the sanctions and their implementation so as to avoid unwittingly facilitating Russian sanction evasion. Furthermore, sanction compliance measures should be in place in conformity with the sanctions enacted in the Entities respective jurisdiction.
For more information you may access the full report here.
By Andie Henderson, Legal & Compliance Associate, The Legal Opinions
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